Observe that two of the lines are IBKR LLC and IBKR UK, so the list is not complete. I asked them for the list of counter parties where client assets may be held by IBKRLLC and IBKR UK, let’s see.
Could you please share their answer?
I asked them “Is it the case that IBKR will hold the US stocks I buy directly at the DTCC? Or will it a sub-custodian?” and they gave me a non answer (“IBLLC provides custody services”).
verbatim non answer, in case you find it more convincing
My question (typoed “DTC” as “DTCC”)
Is it the case that IBKR will hold the US stocks I buy directly at the DTC? Or will it a sub-custodian?
There answer:
As an IB UK client, your assets are maintained at Interactive Brokers LLC (IBLLC). For US securities, IBLLC provides custody services with protection through SIPC up to $500,000 (with a cash sublimit of $250,000) and additional coverage through Lloyd’s of London for up to $30 million (with a cash sublimit of $900,000), subject to an aggregate limit of $150 million.
That some risk is unavoidable is correct. That it can only be mitigated by spreading between brokers is not.
Imagine “There are indeed some crypto exchange-related risks, but they are unavoidable. We can only mitigate them by spreading our assets between crypto exchanges.”
One can asses counterparty risk, legal risk etc… control their exposure and purchase additional guarantees. IBKR purports to carry a policy with “certain underwriters at Lloyd’s of London”, they are presumably not doing this in the spirit of a donation.
An American friend is using Robinhood, we talk about investment fairly often. I told him that if I were him I’d move everything to a serious asset manager. I specifically told him I was put off by the name alone. I mean, it’s called “Robinhood”, how serious could it be?
Now, a name like Stratton Oakmont just oozes confidence, whisky and cigars, Mayflower English Oak and Boston bedrock vibes.
Let’s try to give this discussion a new constructive push. What about securities custody by cantonal banks? Did anyone look at their conditions?
If you want extra safety, custody at TradeDirect by BCV is not that expensive. On the other hand, it was mentioned that custody by ZKB costs 0.3% per year for average Joes, which is too much. TrueWealth is using BLKB as one of their custodian banks.
I’ve taken a look at the regulations for BeKB. The result, as you can see above, wasn’t satisfying. I haven’t checked other cantonal banks. Would be interested to know as well how other institutions, especially those with a cantonal state guarantee fare (BeKB doesn’t have one, although the guarantee would primarily be focussed on the deposits).
The credit rating of many Swiss banks can be found here. For your convenience, here are Swiss banks with at least AA ratings. They are all cantonal banks, except for PostFinance.
Bank name
S&P
Aargauische Kantonalbank
AA+
Banque Cantonale Vaudoise
AA
Basel-landschaftliche Kantonalbank
AA+
Basler Kantonalbank
AA+
Glarner Kantonalbank
AA
Graubündner Kantonalbank
AA
Luzerner Kantonalbank
AA+
PostFinance AG
AA
Schwyzer Kantonalbank
AA+
Zürcher Kantonalbank
AAA
Speaking only french myself, I focused on T&C of French speaking banks. Postfinance has been discussed extensively here already.
BCV is authorized to hold or to deposit the securities and precious metals with a professional custodian of its choice or with a central collective depository in the form of collective custody, for the account and at the risk of the Customer
With this in mind, I would not give as much weight to their own credit rating, given that it doesn’t guarantee deposits.
However, it is worth noting that according to this document, BCV does offer segregated accounts, but charge extra for that (and I could not find the fee table).
For those who consider Saxo as a broker / custody. Saxo has been fined for some issues related to the asset separation from their own, Saxo Bank krijgt boete van €1,6 mln voor chaotische integratie van BinckBank (FD is a Dutch branch of Financial Times, in Dutch and behind paywall) so I google-translated some relevant information:
In short
Saxo Bank accepts a fine for administrative chaos that followed the transfer of customer portfolios from BinckBank.
According to the AFM, the security of customer portfolios was compromised during the transfer.
The Danish bank is also being fined for not maintaining sufficient customer contact during the transfer.
The Netherlands Authority for the Financial Markets (AFM) has imposed three fines on Saxo Bank totaling €1.6 million. The fines are the result of the chaos that arose during the transfer of customer portfolios from BinckBank to the platform of the Danish parent company Saxo. According to the AFM, Saxo Bank acted contrary to the rules for asset segregation, risk management and careful treatment of customers.
The transfer of approximately 300,000 customer accounts from BinckBank to Saxo took place in the summer of 2021. According to the AFM, due to careless administration of investment portfolios, it was sometimes no longer clear to whom assets and investment portfolios belonged.
The supervisory authority’s fine provides insight into what exactly went wrong during the digital move. It was unclear whether the shares that were supposed to be in tens of thousands of customer portfolios were actually present.
A conversation that AFM employees had with the external accountant about this revealed that share portfolios worth hundreds of millions may have been lost. ‘The external accountant does not know whether any documents or money were lost. That is difficult to determine.’
Shit I was part of this migration but had no clue.
First 2 years were shot but it improved a lot since 1 year.
They’re maybe cleaning up the mess to upside their sell offer.
Care to explain? My reading of section 1.4 of their T&C is that they accept liability for any loss or damage caused by third party custodians.
Quoting from that section:
A bank is liable for its own actions, as well as for any loss or damage caused by the third-party custodians it uses, under the applicable legal provisions, in particular those of the Swiss Code of Obligations, the Federal Act on Intermediated Securities and any contractual agreements.
Also they transparently list their custodians though the list may not be exhaustive and one should check with customer service (as I did with PF).
Finally I want to mention that in addition to describing the actual insurance, a credit rating of AAA hints at a safely/conservatively run business.
As for other banks offering this service, Postfinance (AA) also does (see earlier posts in this thread).
Well, then you are better informed than the ZKB employee who told me, that A) there is no guarantee since they cannot prove if there is an actual fraud or if you shared your log-in details with someone and B) that such a case never happened.
So, I am not sure what to think about this statements anymore when reading the T&C‘s you linked.
Btw in the page of the second link: Zürcher Kantonalbank may have custody assets or financial instruments held in its name, but for the account and at the risk of the client, by a third-party custodian (sub-custodian)
Judging by the answer, I suspect you have asked about something different: someone impersonating you and transferring funds. I was discussing the situation where a custodian or sub-custodian misplaces funds or commits fraud.
This is not their T&Cs, this is their version of the standard risk disclosure brochure of the Swiss banking industry. My understanding is that this is a rewording of Article 101 of the Code of Obligations, which states that you are liable for the acts of the people to whom you delegate your contractual tasks. But this can all be waived contractually, and most banks do.
I have not thoroughly reviewed all the legal documents of the ZKB but this one seems most relevant, and it states:
Where safe custody assets may be held in sub-custody, the Bank is only liable for applying the customary due diligence with respect to the selection and the instruction of the sub-custodian. In the case of intermediated securities, it is also liable for applying the customary due diligence with respect to the monitoring of constant compliance with the selection criteria.
So in short, if the sub-custodian has a shortfall, the ZKB is not liable if it can prove that it has chosen a proper sub-custodian, and not a completely trash one. In practice, if there is ever a case of litigation, the ZKB will claim that the custodian was a regulated financial institution supervised by a local financial supervision authority and in good standing, and so they couldn’t know that it would have a shortfall.
To me, I read the BCV’s liability clause in their T&Cs (clause 1.3) as saying pretty much the same thing, but more vaguely:
Relative to the custody and administration of the Safe Custody Assets by BCV or a third party, BCV shall exercise, or shall cause to be exercised, the degree of care required by the circumstances. BCV shall not be liable if the Customer expressly selects a sub-custodian against BCV’s recommendation.
Thanks for stating the reality of the safe custody of securities so clearly and succinctly.
I’ve always been a little amazed that fellow forum members seem to think that they somehow get special treatment different from the industry while all these T&C have been hashed out by armies of lawyers with the main goal to cover the bank’s behind.
If you want special treatment, maybe talk to a private bank, though I suspect even with these gentlemen you have lawyers in the background making sure that if push gets to shove the bank will have the upper hand.
It’s just the plain economics of things: why would a bank have your personal interest first and above the interest of the bank?
Sure, there’s shades of gray, but in summary it’s tainted in the favor of the bank, not you as an individual. The bank might be interested to point out shades of gray, and that they are on the white end of the spectrum, but that’s marketing making their move.
The market for the services they provide probably demands concessions in favor of customers. So they still look out for their own interests (of actually having any customers) by offering competitive conditions. They would not offer those if they had (even) more bargaining power. They have to weight some customer interests higher than their own to exists.
But yes, in push comes to shove, the incentives change. But they can’t retroactively change the contracts.
Thanks for the welcome. I agree with what both you and Helix have said.
One thing I would add, though, is that Swiss banks generally have very little influence over their offshore sub-custodians. Unless you’re UBS, you are a very small player in global financial markets. Since the vast majority of the customers don’t really care about stuff like this, it is efficient for a bank to work with whoever is available, not too expensive, has an okay reputation, and then limit their liability in their T&Cs.
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